3 Myths About Starting a Restaurant

Remember: a smart investment in your business is one that will secure its future.

Small businesses in the U.S. generate more than 60 percent of jobs in the food services and accommodation industries. Entrepreneurs who are considering opening a restaurant or starting a food service business in 2019, may find encouragement in new survey results from Kabbage.

After polling 600 U.S. small business owners, the survey found that the majority of successful entrepreneurs got started with little cash and short run rates. The survey also demystifies the cash flow obstacles many aspiring entrepreneurs may perceive as reasons to not start a business, when in fact they’re all too common.

These are three myths aspiring entrepreneurs should be aware of when starting and building their company:

Myth No. 1: You Have to Start with Brick and Mortar. Not surprisingly to anyone in the industry, restaurants can be an expensive business to start according to the survey results. However, almost a quarter (23 percent) of successful restaurants, bars and caterers said they got started with less than $25,000.

During their first years, some food service companies have found that learning to walk before they run is the best way for them to establish their customer base and manage cash flow. Laura Hobson, the owner of Hobson’s Homemade started selling her baked goods at local farmers markets in Massachusetts. After consistently growing her sales, she sent out a survey to her customers to gauge their interest in a potential brick-and-mortar location. The response was overwhelmingly positive and Laura knew it was time to take her business to the next level.

Other companies have used virtual concepts to expand their business. When Simon Mikhail started Si-Pie Pizzeria in Chicago he relied upon food delivery apps to help him establish his brand. One year in, a delivery app suggested he start serving fried chicken as there was an unmet demand in Simon’s neighborhood. But rather than adding fried chicken to his pizzeria’s menu, Simon created a virtual-restaurant concept, Si’s Chicken Kitchen, which is available only through online delivery apps and has no physical location. A few months later, the sales of fried chicken surpassed delivery sales for pizzas.

The same desire for on-demand service that drove Simon to establish a “virtual” restaurant, inspired him to pursue a new type of business loan. After being turned down by banks, Simon found online lending. His online lending platform evaluated his live business data to approve funding rather than old bank statements. This allowed for faster, more flexible funding that fit Simon’s business needs. He was able to charge supplies against the line of credit he received and get enough funding to open a second location.

Myth No. 2: Start a Business In The Industry You Know Best.Forty-one percent of survey respondents started a business in an industry that was new to them. Despite this, 82 percent of respondents did not doubt they had the qualifications and experience to successfully run a company.

While confidence is key, no business owner should go it alone. Food service entrepreneurs should find a mentor or advisor in their industry who can help them avoid mistakes, keep an eye on long-term goals and give objective advice. Quick-service restaurants are especially subject to dramatic sudden fluctuations in revenue as they deal with seasonal ebbs and flows, inventory with a short shelf life, and cover unexpected expenses. Managing cash flow is critical and the guidance of someone who has navigated the same issues can be transformative. For those searching for a mentor, try connecting with industry contacts on LinkedIn, join a trade association or look at SCORE for opportunities.

Myth No. 3: Being a Business Owner Means Doing It All. Another common misconception is that restaurant owners should both know how to do and manage every aspect of operating a business.

According to the survey, the areas of business in which entrepreneurs had the least amount of experience when they started their company was financing/bookkeeping, legal/compliance and marketing/advertising. Outsourcing some of these necessary tasks can save both time and money.

Restaurant small businesses can also benefit from using technology to automate different aspects of business operations. Different technology platforms can manage tasks like staff scheduling, inventory management, digital marketing, and reservations. Having the right tools in place can improve operational processes, reduce paperwork, increase efficiency and improve worker productivity. Remember: a smart investment in your business is one that will secure its future.

Aditya Narula is the head of customer success for Kabbage. Kabbage has pioneered a financial services data and technology platform to provide access to automated funding to small businesses in minutes. Since 2011, the company has helped more than 165,000 small businesses access more than $6 billion.